LONDON, March 24 Deliveries of tobacco to
retailers in Australia rose slightly last year for the first
time in at least five years, even after the introduction of
plain packaging aimed at deterring smokers, according to
industry sales figures to be released on Monday.

Australia, which in December 2012 became the first country
to ban branded cigarette packs, is being closely watched for
signs of success as other nations including Ireland, New Zealand
and the United Kingdom explore similar measures.

Britain last year appointed a respected paediatrician to
examine whether plain packaging would reduce the health costs of
smoking. The doctor's report is expected this week.

In 2013, the first full year of plain packaging, tobacco
companies sold the equivalent of 21.074 billion cigarettes in
Australia, according to industry data provided by Marlboro maker
Philip Morris International.

That marks a 0.3 percent increase from 2012, and reverses
four straight years of declines.

The exact reason for the upturn was unclear. Some tobacco
companies argue that higher shipments of loose tobacco and a
decline in cigarettes suggest smokers may be trading down to
cheaper products and can therefore afford to buy more of them.

"When you commoditise a product, people go after the price,"
said Eoin Dardis, director of corporate affairs for Philip
Morris in Britain.

"If people are buying cheaper stuff, maybe they're smoking
more of it, I don't know ... It's definitely a point of interest
and that's something that absolutely needs to be explored
because that's the counter of what this policy was seeking to
achieve."

Australia's law requires standardised packaging on all
tobacco products, forcing companies to replace their logos and
branding with graphic images of smoking-related diseases on a
drab background.

The law is aimed at reducing the number of children who may
be drawn to smoking by attractive, brightly coloured packs.

There has been evidence suggesting that the plain packaging
is having some effect on smokers, including a study published in
the British Medical Journal in July.

This study, commissioned by the Cancer Society of Victoria,
found that among 500 Australian smokers, most believed their
cigarettes were less satisfying and of lower quality than a year
ago, with most also thinking more about quitting.

The industry figures showed that for the whole year,
Australian sales of factory-made cigarettes declined just 0.1
percent to 18.75 billion cigarettes. Loose tobacco volume rose
3.4 percent to the equivalent of 2.32 billion cigarettes.

The figures represent the amount of tobacco shipped to
retailers in Australia by companies including Philip Morris,
British American Tobacco and Imperial Tobacco Group
. They do not reflect retail sales to consumers or actual
consumption.

Additionally, a study funded by Philip Morris on the
possible impact of plain packaging on the prevalence of smoking
in minors in Australia found no evidence for an effect. The
study will be published this week in the Working Paper Series of
the University of Zurich's Department of Economics.

Tobacco firms argue that plain packaging laws violate their
trademark rights and may restrict free trade. Australia is
facing challenges at the World Trade Organization over
complaints the laws create illegal obstacles to commerce.

They also say the standardised packaging has led to a jump
in sales of illicit tobacco, partly since the packs are easier
to counterfeit.

In the year to June 2013, accounting firm KPMG estimates
that illicit tobacco, whether smuggled, counterfeit or illegal,
jumped from 11.8 percent of the Australian tobacco market to
13.3 percent.
(Editing by Anthony Barker)

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